Oil Companies Are Hiding The True Risks Of Deepwater Drilling From Investors

Oil and gas companies are doing a terrible job of disclosing climate and deepwater drilling risks, even in light of the tragic Gulf of Mexico oil spill, according to a report released last month. Based on our firm’s experiences with the industry, that came as no surprise to me. The report says that while companies are making extensive capital investments related to climate change and deepwater drilling, they are generally failing to adequately disclose the associated risks in a manner consistent with SEC rules. Neither does this meet growing investor expectations. This report was co-authored by Boston-based investor coalition Ceres and advisory firm David Gardiner & Associates.

The report evaluated SEC filings for the ten largest US-listed oil and gas companies – Apache, BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Marathon, Shell, Suncor and Total – none of which received an excellent rating in the report. Jim Coburn, senior manager of investor programs for Ceres, said they “didn’t find any of the disclosure really valuable enough to help investors understand the risks.” BP, Eni and Suncor provided relatively better climate risk disclosure than other companies reviewed, while the report said Apache and ExxonMobil provided the lowest quality disclosure. The ten companies were rated in five categories for drilling risk:

• safety and environmental statistics;

• drilling risk management;

• spill response;

• safety R&D; and

• corporate governance on drilling.

In spite of the 2010 Deepwater Horizon disaster, according to the report, disclosure on drilling and safety remained weak overall, even for drilling risk management and spill response plans. This type of disclosure is critical. It seems rather elementary to say that it’s important for the oil and gas companies to communicate with their investors. Investors should be given adequate disclosure of all risks so they can evaluate their investments.